A sumptuous fare

Indian Hotels' growth till September is impressive

One way to check Indian Hotels' financial health is to find how much of its profit comes from other income. Last fiscal, other income accounted for 124 per cent of profit before exceptionals and taxes in the first six months; in the second half, other income contributed to a much lower 42 per cent of profit.

Clearly, Indian Hotels does better business in the second half of the year. Since that's the case, there aren't great expectations from Indian Hotels in the first half of a fiscal.

It's rather impressive, therefore, that Indian Hotels' operating profit has risen 32 per cent to Rs 44.23 crore in the first half of the current fiscal.

This was mainly the result of a 19 per cent jump in average room rates and an improvement in occupancy rates to 68 per cent from last year's 61 per cent levels. Revenue per available room (a multiple of these two variables) jumped 28 per cent year-on-year.

Other income did rise considerably by around 86 per cent, but compared to last year's level of 124 per cent, accounted for a lower 90 per cent of profit before exceptionals and tax.

In fact, the company's performance would have been better, but for a Rs 11 crore hit on operating profit in the September quarter, owing to a provision for losses on its foreign currency assets and liabilities and an increase in consultancy fees.

Going by the increase in tourist arrivals in the first half of the year and the resultant increase in occupancies and room rates, Indian Hotels can be expected to grow at a fast pace in the second half period as well. Also, the company's entry into the budget hotels and serviced apartments segments has further diversified its portfolio.

It plans to add 1,000 rooms a year in the budget hotels segment. Given its diversified presence across segments and locations, Indian Hotels is clearly the best placed to tap the anticipated boom in the hospitality industry. Its stock price, however, which is near a five-year high, has already priced in much of the upside.

Reliance Energy

Reliance Energy's September quarter profit were broadly in line with analysts expectations. Net profit grew 24.4 per cent to Rs 128.25 crore (excluding prior period adjustments) in the last quarter on a sequential basis, despite net income (net sales of electrical energy and income from EPC and contracts) declining by 16 per cent sequentially to Rs 791.73 crore.

The company had merged two of its subsidiaries BSES Andhra Power and Reliance Salgaocar Power Company with itself in Q3FY04 and hence the year ago September quarter results are not comparable - hence, the sequential comparison.

Net sales of electrical energy declined 12 per cent sequentially to Rs 703.71 crore in the September quarter due to a July 1, 2004 MERC order on REL's ARR for FY05 (Average Revenue Requirement that utility companies file every year with MERC), which resulted in lower tariffs for Mumbai consumers.

However, cost of fuel has remained more or less unchanged at Rs 185.61 crore in the September quarter. Also the cost of electrical energy purchased has declined sequentially by 20.55 per cent to Rs 233.22 crore in the September quarter due to lower cost per unit.

This helped operating profit grow 10.3 per cent sequentially to Rs 162.57 crore. Going forward, an expansion of its consumer base is viewed as the key driver to profitability and as part of that strategy REL has applied to various regulatory bodies such as MERC, DERC and UPERC.

ICICI Bank

ICICI Bank's operating profit grew 8.5 per cent in the second quarter, the massive shortfall in treasury income being made up by higher net interest income and fee income.

The latter ensured that "other income" for ICICI Bank was lower by only Rs 26.81 crore compared to Q2 last year. Interest on advances rose by Rs 95 crore or 6.4 per cent, testimony to the 25 per cent rise in advances. But that was balanced by lower income on investments.

The net result "" total income was lower by Rs 7 crore. Lower interest expended, the consequence of more low-cost deposits, fuelled the bottomline.

Simply put, ICICI Bank's second quarter results was the story of a Rs 7 crore fall in total income being more than made up by a Rs 193 crore fall in interest expended.

That was more than adequate to take care of rising salary bills and marketing expenditures. Put another way, the rise in net interest income was 45 per cent.

The other well-known trends in the bank "" the repayment of the old ICICI bonds, the continued focus on retail (retail constituted 58 per cent of outstanding advances as on September 30), and the emphasis on low-cost deposits (cost of deposits was 4.3 per cent in Q2) continued. Net interest margin was at 2.4 per cent, slightly higher than the 2.3 per cent in Q1. Both gross and net NPAs fell slightly compared with their levels in end-June. Provisions and contingencies were much lower than in the year-ago period, leading to very small decline in the provision cover.

But while ICICI Bank has been successful in offsetting its reduced treasury income, the fact remains that, after its equity dilution, earnings per share in Q2 was Rs 5.97, compared to Rs 6.52 a year earlier.

With contributions byMobis Philiposeand Amriteshwar Mathur